New Income Tax Bill 2025: All You Need to Know!
How Will the Stock Market React to Union Budget 2025?
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Last Updated: 30th January 2025 - 11:38 am
With Finance Minister Nirmala Sitharaman set to present her eighth consecutive Union Budget, there is an air of anticipation across industries and among individual taxpayers. The Union Budget is a key economic event that not only outlines the government’s priorities but also significantly influences investor sentiment.
Every year, the stock market closely watches these announcements, as they often dictate market direction for the months ahead. While there are high expectations for reforms, tax reliefs, and incentives in this year’s Budget, the market’s reaction will ultimately depend on how well these expectations are met. Let’s see how the markets may potentially react after budget 2025 and a recap of how they have reacted with each budget:
How Will the Markets Respond to Budget 2025?
The Indian stock market's response to the Budget is often driven by a combination of investor sentiment, the policy measures announced, and their alignment with economic needs.
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It is estimated that the country’s GDP growth is projected at a four-year low of 6.4% for FY25. This potentially indicates that the government is under pressure to revive economic momentum and foster consumer confidence amidst growing challenges such as slowing growth, fiscal consolidation, and global economic uncertainty. As these concerns loom large, the stock market’s reaction will largely depend on the alignment of the Budget’s measures with the expectations of investors and key industries.
Investors are closely watching several key areas that may make or break market sentiment. First, the simplification of the tax structure is high on the agenda. The working class is hoping for a more streamlined tax regime, while the financial community expects further rationalization of long-term capital gains tax (LTCG) and a reduction in the Securities Transaction Tax (STT). Fulfilling these demands may boost both retail and institutional investments, driving market liquidity and encouraging broader participation.
Another major area of focus is capital expenditure (Capex), particularly for infrastructure development. There is growing anticipation that the Budget will allocate substantial funds to sectors like roads, railways, and defense. Historically, when the government makes large Capex investments, it tends to uplift stocks in infrastructure and allied sectors, such as construction, cement, and engineering.
Beyond infrastructure, several key industries such as manufacturing, agriculture, EVs, etc. are hoping for targeted incentives and policy reforms. A well-crafted set of measures to support these sectors could potentially spark a rally in related stocks. For example, policies that stimulate growth in the manufacturing sector could push stocks of manufacturers and suppliers upward, while subsidies or reforms for agriculture could lift agribusinesses.
Ultimately, the market’s reaction will hinge on how successfully the Budget addresses the current economic challenges while fueling future growth. If the government delivers a balanced Budget that aligns with market expectations, investor confidence could surge. However, any disappointments or missed opportunities in these areas could lead to market corrections and increased volatility in the short term. The coming days will reveal whether the Union Budget 2025 can live up to its promises and help navigate India through its current economic challenges.
How the Markets Have Reacted to Past Budgets
The stock market's historical reactions to previous Budgets reveal how policy decisions impact investor sentiment.
Budget 2020
In 2020, the Budget introduced new tax slabs and lower rates but failed to offer substantial industry incentives or relief from LTCG tax. This led to a sharp decline in the market, with the Sensex falling by 2.43%, or 987 points, closing below 40,000. Investors lost approximately ₹3.6 lakh crore in a single day, marking one of the biggest Budget-day crashes in over a decade.
Budget 2021
The Union Budget of 2021, however, painted a starkly different picture. Focused on reviving the pandemic-hit economy, the government announced a massive capital outlay for infrastructure, tax holidays for startups, and other growth-oriented measures. The market responded with unprecedented enthusiasm, with the Sensex surging by 4.74%, gaining 2,314 points, to close at 48,600. Similarly, the Nifty rose by 646 points, reaching 14,281. This performance remains one of the best Budget-day rallies in the last two decades.
Budget 2022
In 2022, the Budget aimed to establish a foundation for post-pandemic economic growth, emphasizing sectors like digital technology, agriculture, and infrastructure. This approach buoyed investor sentiment, resulting in the Sensex rising by 1.46%, or 849 points, to 58,862. Meanwhile, the Nifty gained 237 points, closing at 17,576.
Budget 2023
The Budget of 2023 had a mixed market response. While intraday trading saw the Sensex rise by over 1,100 points, it closed with a modest gain of 158 points at 59,708. The Nifty, however, dipped by 45 points, closing at 17,616.
Budget 2024
Budget 2024, in contrast, led to a significant market decline. Announcements like higher capital gains taxes and levies on derivatives trading disappointed investors, with both the Sensex and Nifty falling by around 1% each. The Indian rupee also hit a record low of ₹83.69 against the US dollar, highlighting investor concerns over the government's fiscal policies.
Conclusion
The Union Budget 2025 is poised to be a pivotal event for India’s economic trajectory. While measures like tax reforms, increased Capex, and sectoral incentives could drive market growth, unmet expectations or unfavorable policies may result in corrections. The stock market thrives on clarity, confidence, and growth-oriented measures all of which can be strengthened by a well-structured Budget. For investors, understanding how the Budget’s provisions align with economic and global realities will be crucial.
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